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What is a Statutory Demand?
When an individual or business fails to repay an outstanding debt to a creditor, they could find themselves receiving a Statutory Demand, depending on the circumstances of the debt owed.
A Statutory Demand is a final notice warning an individual or company to repay a debt that they owe. It should be taken very seriously and not ignored by the individual or company as this could lead to further and damaging action.
A Statutory Demand is usually a last resort taken by creditors where a company owes them at least £750 or an individual owes them at least £5,000 and they have already attempted multiple times to collect the debt unsuccessfully. The Statutory Demand will be served to the individual or company that owes the debt in person, and if this is not possible, it will then be posted.
Statutory Demands are, in theory, the first stage in a creditor initiating insolvency proceedings against an individual or business. However, they are often used as method of debt collection where there is no serious intention to pursue insolvency proceedings.
How to respond to a Statutory Demand
When a Statutory Demand is issued, you will have a total of 21 days to respond.
Responding can be done in two different ways:
- Complying with the statutory demand (i.e. paying some or all of the debt)
- Applying to cancel or set aside the Statutory Demand (only available for individuals – businesses will need to object in writing to the service of the demand)
While it might be tempting to simply ignore a Statutory Demand (especially if you think it is an error) this could result in your creditor applying to make you bankrupt or to wind up your business.
How to comply with a Statutory Demand
If you agree that you owe the debt set out in a Statutory Demand and are able to pay it, the easiest and quickest option is to pay the debt off in full or in instalments (if the creditor is willing to accept such an arrangement). This will usually mean that no further action will be taken.
Even if you are unable to pay the debt in full, if you can reduce the amount owed below £750 (for business debts) or £5,000 (for personal debts), the creditor will not be able to pursue insolvency proceedings against you or your business.
How to cancel or set aside a Statutory Demand
If you have been issued with a Statutory Demand as an individual and think this was done in error, there is the possibility of having it cancelled or set aside.
Applying to cancel or set aside a Statutory Demand normally needs to be done within 18 days of the demand being served. You can make the application after 18 days so long as the creditor hasn’t applied for bankruptcy yet, but we would not recommend running this risk.
An application to set aside a Statutory Demand and a supporting witness status, alongside a copy of the Statutory Demand, will need to be submitted to the High Court.
An important point to understand is that the reasons for setting aside a Statutory Demand need to be legitimate. It cannot be because you think the demand is unfair, you are in financial difficulty or there is a small error on the form.
Some of the reasons to apply to set aside the demand could be:
- The debt you owe is less than the £5,000 bankruptcy limit
- There is a dispute between you and the creditor – it must be genuine, e.g. the debt is for goods or a service you did not receive
- You have a counterclaim – you believe the creditor owes you the same amount or more than what you owe them
- The Statutory Demand was issued incorrectly – the wrong forms were used or the demand was served incorrectly
If the court chooses to progress your challenge, a court hearing will be arranged to discuss the debt owed and whether to accept or decline the Statutory Demand.
If your application is approved, the Statutory Demand will either be cancelled or set aside. If cancelled, you won’t need to pay the requested debt value. But if it was set aside, you might still need to negotiate payment with the creditor; this will depend on the reason as to why it was set aside.
If you choose not to negotiate the payment, the creditor could still apply to make you bankrupt.
If the application is declined, the creditor can apply for bankruptcy immediately unless you request extra time to pay the debt (in which case, you must prove that you can pay the debt if allowed more time to do so).
How can a business dispute a Statutory Demand?
If your business has received a Statutory Demand, you will need to write to party that issued the demand and inform them of your reasons for disputing the debt and, where appropriate, a suggested resolution.
As there may be a risk of the party that issued the Statutory Demand applying for your company to be wound up, it may also be sensible to apply to a court for an injunction to prevent a winding up petition being issued.
Please speak to our commercial litigation solicitors about disputing a Statutory Demand.
What happens if I ignore the Statutory Demand?
You should never ignore a Statutory Demand, even if you disagree that you owe the debt specified.
If you ignore a Statutory Demand, it means that the creditor can apply to a court for a winding up petition or bankruptcy proceedings using the reason of non-payment. They can apply for this 21 days after the demand was issued.
If you are a business, any submitted winding up petitions are posted in the London Gazette, which banks refer to for notice of any insolvent businesses. Banks will freeze any accounts that you hold with them and it could also mean that other creditors you owe money to will target you.
If the court accepts the winding up application, they will issue a winding up order, and this will liquidate your company assets to pay off the creditors.
Our solicitors can give you expert assistance with Statutory Demands
At Taylor Fordyce, our litigation solicitors can help with offering you legal assistance should you or your company be involved in a Statutory Demand dispute.
If you would like more information regarding Statutory Demand disputes, please get in touch with our litigation solicitors in Winchester, Sunningdale, Alresford, or London by giving your local branch a call or by filling in our online enquiry form.